COP 7 Morocco

International climate change negotiators in Marrakech, Morocco, reached agreement today on a complex set of decisions spelling out rules for implementing the Kyoto Protocol. The decisions by the Seventh Session of the Conference of the Parties to the UN Framework Convention on Climate Change, known as COP-7, provide detailed "legal" text elaborating on the broad principles of the Bonn Agreement, reached in July at COP 6.5 in Bonn, Germany.

Major areas covered in the Marrakech Accords include:

Operating rules for international emissions trading and the Protocol's two other flexibility mechanisms (the Clean Development Mechanism and Joint Implementation) and rules defining a party's eligibility to participate in the mechanisms.

A compliance regime that sets consequences for failing to meet an emissions target but defers until a later Conference the question of whether the consequences are legally binding.

Accounting procedures that provide for fungibility - meaning that emissions units under all three mechanisms can be transferred several times as equal units.

Creation of a new type of emissions unit for sinks credits that cannot be banked for future commitment periods.

A decision to consider at COP-8 how to proceed at COP-9 with a review of commitments that could frame discussion of future developing country efforts.

In addition, the Conference appointed 10 members and 10 alternates to the CDM Executive Board, nearly doubled Russia's allocation for forest management sinks credit, and approved a declaration to the World Summit on Sustainable Development next September in Johannesburg, South Africa.

The Marrakech Accords effectively complete the work under the Buenos Aires Plan of Action, adopted at COP-4, and set the stage for countries to ratify the Protocol and bring it into force. The Protocol will take effect only when ratified by at least 55 countries accounting for at least 55 percent of developed country emissions of carbon dioxide in 1990. Many countries expressed the hope that entry into force will be achieved by the time of the Johannesburg summit.

The United States participated in the Conference but reaffirmed that it does not intend to ratify the Protocol.

Key Decisions in Marrakech

Mechanisms and Accounting

The Protocol establishes three market-based mechanisms aimed at achieving emissions reductions as cost-effectively as possible. They are emissions trading (the buying and selling of emissions credits among Annex I countries, which are those with binding emission targets); Joint Implementation (allowing one country with a target to receive emissions credit for a specific project undertaken in another country with a target); and the Clean Development Mechanism, or CDM (allowing developed countries to receive emissions credit for financing projects that reduce emissions in developing countries).

Key decisions include:

Fungibility, allowing emissions units under all three mechanisms to be treated equally. This allows for a more liquid market in emissions units, making the mechanisms more viable and enhancing opportunities for cost-effectiveness.

Creation of a new Removal Unit (RMU) to represent sinks credits generated in Annex I countries (including through JI). RMUs can be used only to meet a party's emissions target in the commitment period in which they are generated. They cannot be banked for a future commitment period.

Banking of any remaining emission allowances beyond those needed to meet a Party's target is permitted. Banking of credits generated under CDM or JI is limited to 2.5%, respectively, of a Party's initial assigned amount.

Unilateral CDM is allowed, enabling a developing country to undertake a CDM project without an Annex I partner and market the resulting emissions credits.

Annex I Parties that cannot meet the Protocol's inventory requirements can still host JI projects through a project design and approval process similar to the CDM.

The CDM Executive Board is authorized to approve methodologies for baselines, monitoring plans and project boundaries; accredit operational entities; and develop and maintain the CDM registry. The COP/MOP (the Conference of the Parties meeting as the Parties to the Kyoto Protocol, following entry into force) will oversee rules of procedure for the Executive Board; accreditation standards for, and designation of, operational entities; and a review of regional/sub-regional distribution of CDM project activities.

The requirement in the Bonn Agreement that each Annex I party hold back from the market 90% of its allowable emissions (or five times its most recently reviewed emissions inventory, whichever is lower) is deemed mandatory. The provision addresses the risk of overselling emission credits that a party might need to meet its target. In essence, oversold units become the buyer's liability.

Sinks

The Protocol establishes the principle that countries may receive credit toward their emissions targets for carbon absorbed by forests, soils and other so-called "sinks." The Bonn Agreement defined the kinds of sinks activities that are eligible and, for forest management, set country-specific caps for each Annex I country. The Marrakech Accords:

Russia, which had registered an objection at the time of the Bonn Agreement, sought and received an increase of its ceiling for forest management credits to 33 million tons of carbon annually. The Bonn Agreement had allocated Russia no more than 17.63 million tons.

Require Annex I parties to report on their sinks activities in order to be eligible to participate in emissions trading and the other mechanisms. Parties that report can participate in the mechanisms but their inventories will be adjusted at the close of the commitment period if their reports are deemed inadequate.

Require reporting by Annex I parties on efforts to protect biodiversity in the context of sinks activities.

Compliance

The Bonn Agreement defined the broad outlines of a compliance regime overseen by a Compliance Committee with facilitative and enforcement branches. The agreement also set consequences for failing to meet an emissions target, including: restoration of tons at a rate of 1.3 to 1 (a country must make up its shortfall, plus 30 percent, in the next target period); suspension of eligibility to sell credits; and development of a compliance action plan. Parties took conflicting positions in Marrakech on the legal character of the compliance regime - specifically, whether the consequences for non-compliance should be legally binding. The Marrakech Accords:

Defer a decision on the legal nature of the compliance regime until the first meeting of Kyoto Parties (the COP/MOP) following the treaty's entry into force.

Other Decisions

Review of Adequacy of Commitments

The agenda for each of the last three COPs has called for a review of the adequacy of commitments under the Framework Convention, but each time the item has been deferred, in part because developing countries are not prepared to discuss the question of whether they should take on binding commitments. In Marrakech, the parties agreed to consider at COP-8 how to frame the issue for discussion at COP-9. A workshop is to be held next year to review the most recent report of the Intergovernmental Panel on Climate Change as guidance for future discussions.

Input to the World Summit on Sustainable Development

The Conference adopted a Marrakech Ministerial Declaration providing input to the summit, which will be held in September 2002 in Johannesburg. The declaration emphasizes linkage between sustainable development and climate change; reaffirm development and poverty eradication as the overriding priorities of developing countries; and calls on countries to explore synergies between the Framework Convention and conventions on biodiversity and desertification.